Real estate employment falls in Chicago area

(Crain's) — Occupancies and rents at local commercial properties are rising again, but not enough to boost the local job market.

Nearly 265,000 people worked in the Chicago-area commercial real estate sector in the second quarter, down 2.9 percent from a year ago and 25.7 percent from the first quarter of 2006, when hiring peaked, according to Moody's Analytics Inc., a Westchester, Pa.-based consulting firm. Moody's doesn't expect a pickup in hiring until early 2014.

Job cuts in the local construction industry account for much of the decline. Chicago-area construction employment dipped below 100,000 in the first quarter, the first time since 1985 that has happened, Moody's data shows. Employment fell to 99,150 in the second quarter, down 6.2 percent from a year earlier and 38 percent from a peak of 159,440 in 2004.

The cuts belie the broader recovery under way in the commercial real estate market, suggesting that local firms remain nervous about hiring even though many are posting higher profits. Occupancies among the key property types, including retail, downtown office, downtown and suburban apartments, are all rising again.

Moreover, local commercial construction activity is picking up again. Contracts for future construction in the Chicago area rose 13 percent in the first seven months of the year, to $2.4 billion, according to McGraw-Hill Construction.

Still, the market isn't strong enough to make a difference in hiring, Aaron Smith, senior economist at Moody's, said of the Chicago region.

“The existing supply out there is not being absorbed very quickly because demand is weak,” he said. “Until you start to see that vacancy rate come down, there really is not a need to build new office buildings and new strip malls."

Moody's jobs data includes brokers, property managers, lawyers and real estate financiers. But construction work makes up the biggest single slice of the commercial real estate industry, with 37 percent of the total last quarter. The Moody's data includes public-works projects as well as some residential construction.

Englewood Construction Inc., a Lemont-based general contractor with local and national clients, has doubled their workforce since 2009, to 52 people, but they only have five local field supervisors at present, down from 25 to 30 in 2008, said Charles Taylor, the company's director of operations.

“Certainly there has been quite a difference in the amount of contracts that are let out in Chicago,” Mr. Taylor said. “The other side, the other effect of that, is because there are so few projects to chase after, we're seeing more and more competition added to each project.”

The firm, he said, has been buoyed by work outside of the region while remodeling stores for retailers and restaurants locally.

"The national work has certainly picked up vs. the local work," he said.

Alpine Demolition Services LLC, which specializes in tearing down commercial buildings, is having a strong year, adding about 10 demolition workers, to 40 to 60 in any given week, said Karsten Pawlik, operations manager for the Batavia-based firm.

Yet Mr. Pawlik said his clients aren't planning to build anytime soon — they simply want to clear land for tax reasons.

“We're demolishing stuff they could be building on next year or the year after,” he said.

Moody's forecasts that the Chicago-area commercial real estate industry will lose nearly another 16,000 positions through the fourth quarter next year, most of them in construction. Growth will resume in early 2014, Moody's predicts.

Mr. Smith, the Moody's economist, attributes the job cuts in part to the severity of the downturn in the residential housing market. Price declines have been a drag on the local economy by leaving homeowners feeling poorer and putting a cap on their ability to spend.

Also weighing on the market: Commercial property lending, which has yet to pick up in a meaningful way, and the state's fiscal crisis. State government positions in the region dropped 1.8 percent between August and the year before, while the decline was 0.7 percent nationally, according to Mr. Smith. The fiscal challenges also add a layer of uncertainty businesses can't plan for, he added.

Commercial property jobs account for 7.2 percent of the total number of jobs in the Chicago region, vs. about 7.6 percent nationwide, according to Moody's.